Practice Quiz

Financial Planner

Category - Tax Planning

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Divorce happens. Often there are children involved needing child support. Often there is property involved that needs “splitting.” Sometimes alimony must be paid. Payments as alimony must meet a certain set of rules. What condition is a payment as alimony rule?
  1. Payment must be made in cash.
  2. Payment must be simultaneous with child support (if applicable).
  3. Front loading should not be avoided.
  4. Payer and payee must file a joint tax return.
Explanation
Answer: A - Payments are alimony if the payment is in cash. Alimony is a series of payments from one spouse to another or to a third party on behalf of the receiving spouse. Alimony is taxable income to the recipient and tax-deductible expense to the payer. Payments are alimony only if all of the following conditions are met: a) payments must be made in cash b) payments must end at death of payee c) payer and payee cannot live together or file a joint tax return d) payments must be paid under a divorce or separation agreement e) front loading is avoided.
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